Lawyers as executors: Traps and tips

Are you about to accept the role of executor and trustee?* Based on our claim reports, the role is often not as simple or straightforward as you may think. If you say yes, appreciate that you are about to take on obligations that may be quite foreign to you. So read our tips to avoid falling into the traps that have caught other lawyers who ventured forth, ill-prepared.

But first, double check that you’re insured, as this may influence your decision to accept the role or decline (read more at Executors, trustees and other fiduciaries). And if there is the potential for significant losses flowing from any successful negligence claim, buy excess insurance.

Don’t get tripped up by assuming that because you are a lawyer — even a seasoned, senior lawyer — you know what it takes to be an executor. This is a dangerous assumption. The legal issues can be devilish. And a court may ultimately hold you to a higher standard qua trustee than a lay person, presuming that you will know the law and duties of a trustee, given your legal training.

Make sure that you know or learn about the duties and obligations that you’re taking on, and that you are willing to dedicate the time required to discharge them properly.

If you are new to the role, read the sample retainer letters in the Probate and Estate Administration Practice Manual, loose-leaf and online (CLEBC) that set out the separate responsibilities of the estate’s executor and lawyer — they’ll help introduce you to the scope of the role you may be accepting.

Thoroughly review the terms of the document pursuant to which you are appointed (e.g. will or trust deed) and any relevant legislation (e.g. the Wills, Estates and Succession Act, the Trustee Act).

And if you find yourself in the situation of one lawyer who felt compelled to accept because of a dying client’s pleas, and later reported a claim, either resist or explain that you will need to hire the appropriate experts to help you properly manage your responsibilities.

Recognize that some breaches of statutory duties will expose you to personal liability. For instance, if you distribute an estate in advance of a clearance certificate, you are personally liable to CRA for any of the estate’s unpaid taxes. If you are late in filing an estate’s tax return, penalties and interest may be assessed against you personally (and there is no coverage for penalties under the Policy).

The type, extent and potential magnitude of the responsibilities that you assume qua fiduciary are very different from those that fall to you qua lawyer. They will also vary depending on the nature of the fiduciary obligation you are assuming — administering a simple estate, for instance, is very different from administering or managing a trust. Bear in mind that:

The role may require you to make business or investment decisions, and will impose on you obligations to account. Although the Trustee Act may provide you with some statutory protection, you risk finding yourself sued, as did one lawyer, for negligently investing in a fund that resulted in a loss.

As executor, you have to deal with some very basic matters. Are you prepared to take on decisions about the deceased’s body, food in the fridge, pets? As one lawyer advised us, he was reluctant to act as a trustee given a previous experience in which he “was required to attend a deceased’s apartment that was a total mess (finding $4,000 in Canada Savings Bonds in the garbage) and arrange for pickup of clothing and cleaning of the apartment.”

You may be stepping into, as one lawyer told us, “dysfunctional family relationships.” That claim related to the lawyer acting as an attorney under a power of attorney but the advice — “next time recommend a financial institution with more resources to manage this file” — applies to any of these fiduciary roles.

Ask yourself if you have the time that proper performance of the role will require. If you don’t, decline. Delays that may be of no consequence in one context may translate into hard losses for the estate, and you, in another. You are at particular risk in volatile markets, where delays in realizing on assets may result in significant losses.

If you’re operating in an area outside of your expertise, you may need legal, investment and/or accounting advice. Get the help that you need.

As always, be clear if you are relying on the advice of others and make sure that your reliance is confirmed in writing. One lawyer, acting as an executor and trustee, signed income tax returns that were incorrect, triggering substantial interest and penalties. That lawyer was extremely grateful that there was no subsequent dispute as to who was responsible for preparing the tax returns, thanks to written confirmation as to where that responsibility lay (not with her).

Appreciate that those to whom you owe a duty will look to you when things go wrong. Beneficiaries, unhappy with the amount ultimately realized from an estate, may claim that you didn’t do enough to maximize the estate’s potential value. One beneficiary may allege that you preferred another, to that beneficiary’s prejudice, or that you were somehow acting in a conflict of interest. Discharge your duties properly, and recognize and manage the risk of unhappy beneficiaries.

Beneficiaries questioned investments made on behalf of an estate, alleging that the lawyer executor didn’t do enough to maximize the estate’s potential value.

A lawyer executor made a significant donation to a political party out of an estate, not appreciating that she was contravening her duties as an executor.

A lawyer executor transferred real property to a sole beneficiary without first determining whether the estate owed taxes or obtaining a clearance certificate from CRA. The lawyer executor now faces personal responsibility for taxes.

A lawyer executor faces personal liability to a creditor in his claim against the estate, as the estate’s inability to pay any judgment was not raised as a defence.

A lawyer executor delayed filing an estate’s tax returns. Penalties and interest may now be assessed against the estate, leaving the executor exposed to a claim.

As one of two co-executors, a lawyer delegated responsibility for managing the estate investment portfolio to his co-executor. The portfolio has been wiped out through improvident investments, and the beneficiaries are claiming breach of trust against the lawyer.

A testator’s disinherited daughter discovered that her claim under the Wills Variation Act was statute-barred. She sues the lawyer executor, alleging that she relied on his advice that there was no need to sue under that legislation.

An estate had a tenuous claim to half of the proceeds from the sale of a property. The lawyer executor did not pursue the claim, and the beneficiaries sued the lawyer and his co-executor for failing to do so.

* In this material, executors includes executrices and may also include acting as a trustee. Executors may be referenced as personal representatives under the Wills, Estates and Succession Act.

Undue influence

Shift in the onus of proof under new legislation

The law in relation to undue influence is changing for wills practitioners. The Wills, Estates and Succession Act, in force along with its probate rules March 31, 2014, introduces a shift in the onus of proof in relation to undue influence challenges to wills in some cases. The Act will govern probate of a will if the will-maker dies after it comes into force, regardless of when the will was prepared.

Someone may challenge a will or a provision in it, alleging that it does not reflect the true wishes of the will-maker, but is the result of undue influence by a third party. If established, the will or provision is void. In the past, the onus of proving undue influence affecting a will always fell to the challenger. Section 52 of the Act reverses that onus, in certain circumstances. Under section 52, if a challenger establishes that a third ­party was in a relationship of potential domination or dependence of the will-maker, the onus now shifts to the party seeking to defend the will to prove that no undue influence was exercised by the third party. This shift in onus may result in an increase in undue influence challenges.

If you drafted the will in question, expect to be called as a witness in the ensuing litigation, compelled to testify about the facts and circumstances surrounding the making of the will and to produce your file, including notes. If you failed to take reasonable steps to ensure the will reflects the will-maker’s genuine wishes, or did not keep adequate notes, you may be at risk. For help in recognizing and dealing with situations of potential undue influence, see the best practices guide and reference aid now available (see below).

The guide is intended to assist lawyers and notaries recognize and deal with situations of potential undue influence when drafting wills, but it can also be applicable when preparing other personal planning documents, such as powers of attorney and representation agreements, and to transfers of property and various other common transactions, including gifts, loans and guarantees between family members and acquaintances.

The guide includes red flags and guidelines, as well as a reference aid (checklist, red flags and a flow chart of recommended practices). We have a limited supply of the reference aid in brochure form available to lawyers by request (while supplies last). Please email your request, along with your name and address, to insurance@lsbc.org.

This summary is based on Undue influence: onus of proof, best practices, Insurance Issues: Risk Management 2012, Winter.

Changes to adult guardianship legislation

Lawyers practising in the adult guardianship, estate planning and elder care areas should familiarize themselves with the changes introduced by the Adult Guardianship and Planning Statutes Amendment Act, 2007. The Act makes fundamental changes to various statutes relating to adult guardianship, enduring powers of attorney and elder care in British Columbia. Some of these changes came into effect on September 1, 2011, although other sections of the Act are not yet proclaimed. The changes may expose unwary lawyers to negligence claims in relation to:

The Law Society’s professional liability insurance Policy generally covers mistakes made by a lawyer who acts for a client as a property guardian under the Adult Guardianship Act(the “AGA”) or as an attorney under the Power of Attorney Act (the “PAA”). The services provided must be connected with and incidental to the lawyer’s practice of law.1

The Act codifies various obligations and duties of property guardians and ­attorneys under both the AGA and the PAA. Lawyers will want to consider those duties carefully before agreeing to act, given the potential liability for any breach. The following obligations are of particular importance:

to act in the adult’s best interests, taking various factors into account, such as the adult’s expressed instructions and known values (AGA s. 21(2); PAA s. 19(2));

with limited exceptions,2 to invest the adult’s property only in accordance with the Trustee Act (AGA s. 21(3)(a)); (PAA 19(3)(b));

not to dispose of property known to be subject to a specific testamentary gift in the adult’s will, unless “necessary to comply with” the duties of a property guardian or attorney (AGA s. 21(3)(c) and (5); PAA, s. 19(3)(d)).

A lawyer who acts as a property guardian should also be aware that the duties continue after the adult’s death until a grant of probate or letters of administration is issued and served.

Lawyers involved in the preparation and execution of enduring powers of attorney should pay particular note to amendments made by the Act to the PAA. Please expand to read more about:

Capacity

"Springing" powers of attorney

Content

Execution

Capacity

The PAA now sets out a test as to the requisite capacity to make an enduring power of attorney. An adult “is incapable of understanding the nature and consequences of a proposed enduring power of attorney” if unable to understand all of the matters specifically enumerated in s. 12(2), or as may be prescribed by regulation. Lawyers should carefully assess whether an adult is capable of making an enduring power of attorney in accordance with the test, and should retain notes or other documentation relating to that assessment. A lawyer who fails to make appropriate inquiries as to capability may later face a claim from the adult, or representative of the adult, if a power of attorney is abused by the ­attorney.

Content

Section 14 stipulates that an enduring power of attorney must indicate whether the attorney may exercise authority while the adult is capable or only while the adult is incapable, and that the attorney’s authority continues despite the adult’s ­incapability. Lawyers drafting enduring powers of attorney should ensure that the elements required by s. 14 are included, as appropriate.

"Springing" powers of attorney

Section 26(2) provides that, if an enduring power of attorney is to take effect when a subsequent event occurs, the adult must state in the document how, and by whom, the event is to be confirmed. Lawyers drafting springing powers should take care in describing the triggering event and how the s. 26(2) requirements will be met.

Execution

Section 16(1) provides that an enduring power of attorney must be signed and dated by the adult in the presence of two witnesses, and by the witnesses in the presence of the adult. Only one witness is required if the witness is a practising lawyer or notary (s. 16(4)). Certain people are not to act as witnesses. (s. 16(6)).

Remember as well that, to be effective for Land Title Act purposes, an enduring power of attorney must be executed and witnessed in accordance with the Land Title Act (s. 16(5)).

If execution is flawed, an application may be brought under s. 36(3) for an order that the power of attorney is valid ­despite any defect in its signing. The lawyer involved in execution may, however, face a claim for the cost of such an application or of an application for appointment of a property guardian.

This summary is based on What you need to know about changes to adult guardianship legislation, Insurance Issues: Risk Management, Fall 2011.

The Representation Agreement Act: Important issues for lawyers

Important note:

The Representation Agreement Act that allows an "adult" to give a person or persons (the adult's "representative") authority, by means of a representation agreement, to make both financial and health care decisions for the adult, came into effect in February 2000. At that time, we highlighted a number of important issues for lawyers in relation to the new Act and regulations. Those issues follow. As the Act has been amended since, the following material should be read in that context. Updated information about incapacity planning is available on the Attorney General’s website.

Any practitioner who advises on matters relating to incapacity, who engages in estate planning or who counsels third parties (such as financial institutions) on how to deal with matters involving incapable persons and their financial affairs should be familiar with the provisions of the Act and related adult guardianship statutes and should be aware of the concerns relating to the Act, some of which are:

A lawyer acting for more than one party in the preparation of a representation agreement must comply with the requirements for joint representation in section 3.4 of the Code of Professional Conduct for British Columbia.

Lawyers proposing to act for both an adult and a representative must be extremely vigilant to ensure that they do not act in a conflict. The likelihood of a conflict increases if the adult does not have full capacity, if there is a concern that undue influence may be exerted or if there is a disagreement about any aspect of the proposed agreement (e.g., the scope of the representative's authority, the representative's remuneration or responsibility for payment of the lawyer's fees).

An adult may name in a representation agreement someone to act as a monitor. The monitor's role is to oversee the representative's activities and to try to make sure that the representative complies with his or her duties. Because of the obligations imposed on monitors under the RAA, a lawyer acting for either an adult or representative should not also act for a monitor.

If the lawyer intends to act for only one party to the agreement, the lawyer should confirm to the other parties that the lawyer is not acting for them.

The execution formalities imposed by the RAA and regulations are more complicated than those currently applicable to an enduring power of attorney.

The execution formalities require, for example, two witnesses to the signatures of the adult and each representative and alternate representative. The RAA limits who may act as a witness and all witnesses must understand the "type of communication" used by the adult. The representative, alternate representative, witnesses, lawyer consulted and monitor must each sign certificates in the forms set out in the regulations. The witnesses must, among other things, state that they have no reason to object to the making of the agreement within the meaning of section 30 of the RAA. In view of this requirement, it is not clear whether each witness has an obligation to independently verify whether any reasons to object exist. Lawyers should be particularly aware of this issue if asking staff members to act as witnesses.

Although the court may order that a representation agreement is not invalid solely because of a defect in the execution of the agreement, it is unclear when, and upon what basis, the court will exercise that discretion.

The RAA contemplates two kinds of representation agreements. The first is called a standard, or section 7, agreement. It can be made by an adult who has less than full legal capacity, but the representative's authority must be limited to the "routine management" of the adult's financial affairs and the agreement can only give limited decision-making authority in respect of health care matters. The capacity test applicable to section 7 agreements and the definition of "routine management" are both problematic.

A lawyer who prepares a representation agreement must assess the capacity of the adult for whom the document is prepared. If the lawyer believes that the adult does not have the requisite capacity, the lawyer should not participate in the preparation or execution of the agreement.

It seems clear that something less than full capacity is required to make a section 7 agreement. Section 8 of the RAA, however, provides only limited guidance as to what degree of capacity is in fact required to make a section 7 agreement.

A section 7 agreement may provide for the representative to make decisions about the "routine management" of an adult's financial affairs. "Routine management" is defined, to a degree, in section 7(b) of the RAA and in the regulations. Lawyers should take care when preparing agreements and when advising representatives (and third parties who deal with them) as to the limits of the authority granted by a section 7 agreement. If a representative acts outside the permitted scope of his or her authority, that act may be ultra vires.

The second kind of representation agreement is an enhanced, or section 9, agreement. It is comparable to an unlimited enduring power of attorney in terms of the scope of authority that may be granted to a representative in respect of the adult's financial affairs. A section 9 agreement can only be made by an adult who understands "the nature of the authority" given to the representative and "the effect of giving it to the representative." This test is similar to that which is now applicable to enduring powers of attorney.

Section 9(1)(i) of the RAA provides that an adult may authorize a representative to "undertake any other specified task, or make any other specified decision, that is not prohibited by law." Because of the adjective "specified," some practitioners are of the view that it may be necessary to draft a detailed "laundry list" of powers to be given to a representative, rather than to simply provide that the representative has authority to do everything that an adult can authorize an attorney or agent to do as a matter of law.

Lawyers may occasionally be asked to advise monitors or possibly to act as monitors under a representation agreement. Section 20 of the RAA sets out the duties and powers of monitors. Section 25 provides that a monitor is not liable for any act or failure to act of a representative if the monitor acts honestly and in good faith and exercises the care, diligence and skill of a reasonably prudent person. Nevertheless, lawyers considering acting as monitors should assess the time commitment required to meet the duties imposed on monitors and the potential for claims for failure to satisfy those duties.

It is unclear whether a person is entitled to be remunerated for acting as a monitor.

Sections 16(2) to (4) require a representative to consult with the adult about the adult's current wishes and, if "practicable," comply with any wishes expressed by the adult. These provisions are also potentially problematic. For example, section 16(2) requires the representative to consult with the adult "to the greatest extent possible." It is unclear whether this means that the representative must consult with the adult on every decision, no matter how minor the matter and irrespective of the adult's ability to participate in that decision.

Practitioners should:

Carefully consider all of the provisions of the RAA and regulations before preparing representation agreements, attending on their execution or advising as to their validity, nature or effect; and

Watch for any amendments to the RAA, it’s regulations and related enactments.

Resources on the RAA

For lawyers interested in learning more about the RAA and related adult guardianship legislation, here are two useful resources: